CEMA Loans in New York: How to Save on Mortgage Recording Tax
What Is a CEMA Loan?
A Consolidation, Extension, and Modification Agreement (CEMA loan) is a specialized tool in New York real estate law that reduces the mortgage recording tax owed when a mortgage is refinanced or when a buyer acquires a property under certain conditions.
Instead of extinguishing the old mortgage and recording a wholly new one, a CEMA consolidates the existing mortgage with the new loan into a single mortgage of record. This structure lets the borrower or purchaser pay the mortgage recording tax only on the new financing being added, not on the full principal.
CEMAs are typically used in: (1) Refinances: restructuring or refinancing existing mortgages; and (2) Purchases: when the seller’s unpaid principal on the mortgage is significant, the seller’s mortgage is assigned to the buyer’s lender, which can also occur, especially in sponsor condo sales.
Used properly, a CEMA can yield substantial tax savings, often tens of thousands of dollars in high-value transactions.
Why CEMAs Matter in New York
Mortgage recording tax is payable on both purchases and refinances in New York State, and the rate varies by county. New York City imposes some of the highest taxes: 1.80% on mortgage amounts under $500,000, and 1.925% on amounts over $500,000 in most boroughs.
A CEMA ensures you only pay tax on the “gap” -- the difference between the new loan and the unpaid balance of the old loan.
Example:
- Suppose you owe $500,000 and refinance for $600,000.
- Without a CEMA, mortgage recording tax applies to the entire $600,000, the newly recorded mortgage.
- With a CEMA, tax applies only to the $100,000 gap as you are not required to pay recording tax for the existing mortgage.
When Are CEMAs Used?
CEMAs are commonly employed in these scenarios:
- Residential Refinances: Homeowners seeking lower rates or restructuring debt
- Commercial Refinances: Owners of multifamily, retail, or office properties
- Sponsor Purchases / Condo Sales: In new developments, the sponsor may assign its construction or purchase mortgage to the buyer, who then avoids paying full mortgage tax
- Portfolio or Multi-Loan Consolidations: Merging multiple loans into one instrument
What Properties Are Good Candidates for a CEMA?
Not every property or loan benefits from a CEMA. Here’s how to identify a strong candidate:
Good Candidates
- Land and Real Property: CEMAs apply only to mortgages secured by real property in New York (homes, condos, mixed-use, and commercial buildings).
- High-Value Properties: The higher the loan, the larger the potential savings.
- Recently Purchased Properties: Borrowers who bought within the last few years and still carry a large outstanding balance.
- Sponsor Condo Purchases: Buyers in new developments can often negotiate a “Sponsor CEMA.”
- Refinances with Large Outstanding Principal: Ideal when significant debt remains to be refinanced.
Poor Candidates
- Co-op Apartments: Co-ops are shares of stock, not real property; they are not subject to mortgage recording tax, so a CEMA offers no benefit. For more on the legal differences, see Co-op vs. Condo in NYC: Legal Differences and 2025 Trends.
- Small Mortgages: If the unpaid balance is low, the savings may not outweigh the cost and time.
- Out-of-State Properties: CEMAs are unique to New York State.
Challenges, Risks & Key Legal Requirements
While CEMAs offer savings, they also involve complexities:
- Lender Cooperation: Current lenders are not legally obligated to agree to a CEMA. Some charge fees or impose strict conditions.
- Chain of Title & Endorsements: Prior notes, allonges, and endorsements must be properly documented and reviewed. Missing or defective paperwork can derail a CEMA.
- Legal Language: The consolidated note must clearly state that it amends and restates all prior notes and mortgages, usually with an Exhibit A listing each.
- Title Insurance: Title companies must verify that all prior liens and mortgages are satisfied or properly assigned.
- Time & Fees: CEMAs often extend closing timelines and may involve added lender or attorney fees.
Despite these hurdles, the tax savings usually far outweigh the costs.
How the CEMA Process Works
- Request a CEMA: Notify your lender early in the transaction.
- Coordinate with Old Lender: Obtain payoff figures, assignments, and note endorsements.
- Review Documents: Ensure all prior notes and mortgages are valid, endorsed, and properly recorded.
- Draft the CEMA Agreement: Consolidates old and new mortgages into a single instrument.
- Calculate Mortgage Recording Tax: Apply tax only to the new loan money.
- Record the CEMA: File with the county clerk.
- Close the Loan: Fund and close under the consolidated mortgage.
Although CEMA introduces extra steps in the closing process, many of these mirror standard NYC closing procedures.
Sponsor CEMAs in New Condo Purchases
In new condominium developments, buyers can benefit from a Sponsor CEMA:
- The sponsor assigns its existing mortgage to the buyer’s lender.
- The buyer pays tax only on the new portion of financing, not the full balance.
- In luxury markets like NYC, this can mean six-figure savings.
For developers, offering Sponsor CEMAs can make their units more attractive to buyers.
Final Thoughts
Whether you are refinancing or purchasing from a sponsor, a CEMA loan can dramatically reduce your mortgage recording tax liability. While the process requires lender cooperation, careful legal review, and added documentation, the potential savings often make it well worth the effort.
Contact Elad Michael, Esq. to determine if your property qualifies for a CEMA and to ensure the transaction is structured correctly from start to finish.